Working Paper No. 08-12

The Effect of Proposition 13 on Mobility: A Hazard Rate Approach

Nikolay Dobrinov

November 2008 (updated November 2009)

ABSTRACT

In 1978 California approved Proposition 13 which limits the annual increase in property taxes for households staying in their homes. Because this is an annual limit, the annual tax savings increase over time. On moving, a household loses this favorable tax treatment. In this paper I estimate the extent to which these tax savings reduce house hold mobility. The study improves upon previous studies because: (1) I use a duration model to describe the decision to stay in one's home, and (2) I correct for aggregation bias, for omitted variables bias, for measurement error bias in household income and house values, and for the co-determination of property taxes and public service provision. My analysis nds that the hazard rate of duration decreases by 3.6% for each $100 of annual taxes which are saved if the household stays in his home.

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